As the commercial cannabis industry flourishes in the United States and Canada, investors are clamoring to enter this fast-growing segment. The industry is worth billions of dollars, and is expected to generate $40 billion or more by the year 2020. Despite the rosy financial outlook and the booming industry, many investors are playing the waiting game, reluctant to make capital investments in the market until laws shift in their favor.
Leading investors suggest that many billions of dollars await the industry. So, why are investors watching the cannabis industry carefully? In this article, we will discuss some of the factors that influence cannabis investment and provide insights into investment strategies that will help the industry continue to grow.
The Waiting Game in Cannabis Investing
Investors around the world are ready and willing to help fund the growth of the cannabis industry, yet across-the-board investments are few and far between. Why are investors so reluctant to enter this industry? Much of that reluctance centers on the hazy legal footing of cannabis. In many states, medical marijuana has gained legalization, thanks to the efforts of industry advocates, patient groups, and forward-thinking lawmakers. In total, 29 states and the District of Columbia have passed some form of medical marijuana legalization legislation. Nine states and D.C. have also passed recreational marijuana legalization initiatives. On the state level, the path forward is fairly clear, but on the federal level, the future is not so simple. Federal laws still see marijuana as wholly illegal; in fact, the U.S. Drug Enforcement Administration (DEA) still classifies cannabis as a Schedule I drug with a high potential for abuse and no valid medical application.
Investors are watching legalization developments carefully. For many of these would-be investors, there’s simply no point in funding cannabis businesses with the specter of federal crackdowns looming overhead. It is clear that passage of recreational marijuana legalization in several states has muddied the waters; a changing public perspective on the benefits of medical marijuana have spurred industry growth and legislative reform, but on the recreational side, there are fewer proponents among lawmakers.
A Push Toward a Federal Mandate?
Kevin O’Leary, a financially successful entrepreneur, business leader, and television personality, believes that the cannabis industry should focus its efforts on resolving legalization on the federal level. Passage of a federal mandate would open the floodgates for investment capital, both from U.S.-based investors and sovereign wealth funds alike.
Here, as in any discussion about cannabis legalization, the contrast between medical and recreational markets must be illustrated. Public perception on medical application of cannabis has shifted over the past few years, leading to nearly 30 states passing legalization legislation. Patient advocacy groups, medical researchers, and the medical community have banded together, realizing that medical marijuana may provide safer alternatives in treating a wide range of health conditions. On the recreational side of the equation, there is not as widespread a cultural shift. Far fewer states have passed legalization initiatives, and the prospect of a federal mandate on recreational cannabis use, possession, and cultivation is substantially less likely in the near future. Even in Canada, where a groundswell of support ushered in medical cannabis legalization and a clear path toward recreational legalization, passage of recreational laws may not be the “slam dunk” predicted by industry analysts. The end result of this is that investors are sitting on the sidelines, looking for clear and unmistakable signals that it is safe to enter the industry with funding.
Tips for Investing in the Cannabis Industry
It is easy to understand why so many investors are hedging their bets before entering the cannabis industry, but despite their hesitation, several well-heeled investors have begun to fund legal cannabis cultivation and distribution firms on the state level. Typically, investors come from the technology sector, and are able to afford multi-million dollar investments.
Where does that leave less financially-able investors? There are a number of tips that industry analysts have shared in order to encourage investment in this growing market. Some of the takeaway points in investing include:
- Understanding that there is a high level of volatility, particularly in publically-traded cannabis stocks. Headline risk is a constant concern; investors wary of financial risks are advised to wait until the market coalesces before funding projects.
- Realizing that business cash flows may be uncertain. Many banks are reluctant to provide services to legal cannabis industries, and as a result, the cannabis industry is cash-heavy. Return of capital investments, on the other hand, is tremendously uncertain.
- Believing in the promise the industry holds as a financial windfall. In just a few short years, the industry has taken an illegal product, created a structure through legal mandates, and generated incredible amounts of capital. Politicians understand that for taxation purposes, the legal marijuana industry can help fund numerous state and municipal programs, making passage of legalization initiatives very tantalizing.
Tips for Cannabis Entrepreneurs
For those entering the cannabis industry as business owners and entrepreneurs, the future is very bright indeed. Still, there can be difficulties in securing funding through investments. One tactic many operations use is to focus on identifying potential investors who aren’t concerned about federal compliance risks. These investors are a good bet, but may be harder to find.
The Canadian legalization model deserves to be scrutinized; nationwide medical cannabis legislation passed last year, creating new opportunities for business owners and investors. Since Canada is the leading trading partner of the U.S., many industry analysts believe that their federal mandate can help push the U.S. government to adopt a similar approach, particularly in medical marijuana legalization. As mentioned earlier, it is critical that entrepreneurs, investors, and industry advocates band together to push for a federal mandate in the U.S. This could finally create the organic growth and financial stability the cannabis industry needs to flourish.
When the state of Colorado passed legislation legalizing recreational marijuana in 2014, opponents in the state and on the U.S. level predicted a significant rise in crime based on the new marijuana market. While some municipalities in the state have experienced an uptick in crime, particularly the city of Pueblo, a recent University study has concluded that cannabis legislation has NOT been the cause of the city’s challenges. These challenges have included higher crime levels and a surge in the homeless population of the region. In this article, we will discuss the study and its ramifications on the cannabis industry, both in Pueblo and in Colorado on the whole.
The Institute of Cannabis Research Study
Researchers at the Colorado State University-Pueblo Institute of Cannabis Research conducted a study that looked at several factors in the region regarding the state’s cannabis legalization initiatives. The study itself was divided into three sections:
- Social Impact
- Economic Impact
- Water and Energy Impact
The social impact portion of the study collected information on demographics as well as on poverty levels and numbers of homeless residents. It also looked crime based on legalization, health impacts and costs, and student use/prevention. The economic impact took several factors into account, including real estate values in the region as well as construction spending and per-capita income. The water and energy impact part of the study looked at how the cannabis industry is using resources. The study was the first of its kind in the United States, and was funded by state and local cannabis sales taxes. These taxes have been substantial in the state, with $67 million in taxes, licenses, and fees collected in the state’s first year (2014) of legalization. In 2017, the state raked in $247 million in taxes, licenses, and fees, helping to fund a variety of state efforts including research, law enforcement, and youth cannabis use prevention programs.
Results of the Social Impact Study
As mentioned earlier, opponents of cannabis legalization efforts in Colorado predicted a grim future, with hordes of people moving to the state, spending their last pennies on recreational weed, then creating a burden on social services and healthcare providers. Crime rates and the number of homeless people have increased from past years, but the study demonstrated that these increases were not the result of legal cannabis legislation.
First, the population continued to increase, but at rates experienced before legalization passed in Colorado. Second, the people moving to the area generally have college degrees and a level of affluence that enhances the local economy. Fears of migrants or those without an education coming to the area are largely unfounded. Naysayers were quick to point out concerns about undocumented migrants flooding the Pueblo community, but the study indicates otherwise.
Homelessness has risen, but the study has concluded that legalization has not been a contributing factor in this rise. A depressed local economy has been the case since the 1980s when manufacturing centers closed or moved out of the region. It is unclear what other factors have contributed to the increasing numbers of the homeless population; researchers suggest that rising home values and increases in utility costs may have been some of the potential factors.
For youth use of marijuana, the study paints a surprising picture. Despite almost half of area schools not having youth prevention programs in place, cannabis legalization has not had much, if any, effect on the numbers of middle- and high-school age students using marijuana.
Crime is a concern, and the study suggests that although cannabis legislation has not had a measurable effect on crime rates, other drugs may have contributed to the rise. Colorado, and Pueblo in particular, is plagued with illegal growing operations and black market sales of cannabis. Illegal marijuana seizure rates have risen in the surrounding county, but not in Pueblo itself. Property crimes and heroin- or meth-related related crimes have risen; again, this isn’t seen as a result of cannabis legalization but in the overall economic depression of the area. Violent crime rates within the city have slightly increased, but are declining in rate on the county level.
Further studies are indicated to determine the factors behind increasing crime and homelessness in the community of Pueblo. For now, however, marijuana legislation cannot be blamed for the city’s problems, and in fact may present a solution in the coming years as tax revenues from legal sales increase.
Problems in Pueblo
The Pueblo area of Colorado has struggled with high unemployment – with rates as high as 7.2%, among the highest in the state of Colorado — and few opportunities for growth since the early 80s, when steel-production facilities closed their doors. The loss of a Pepsi-Cola bottling plant has also affected job rates in the area. The ensuing economic downturn has been hard on the community, contributing to a rise in homeless populations and a steady upward turn in crime rates.
The commercial cannabis industry may be a solution for the Pueblo community, not only for employment rates but also in a reduction in crime. A company called Doyen Elements International, Inc. is putting the finishing touches on a sprawling commercial cultivation facility in the area. The facility is located in the old Pepsi bottling plant. Abandoned by the Pepsi Corporation in the early 2000s, the bottling plant sat vacant for over a decade. It was a source of concern for area residents because the vacant property was attracting vandals. When a subsidiary of Doyen Elements secured rights to the property in 2015, the community welcomed the news with open arms. Once the facility is in full operation by 2019, Doyen expects to see plant yields in the range of 60,000-70,000 pounds per year. At a market rate estimated at $300 per pound, this facility can generate up to $20 million in annual sales to medical dispensaries and recreational marijuana distributors. The local job market is expected to improve as a result of the new facility; analysts estimate that the facility will employ hundreds of workers, helping to stimulate the local economy.
The state of Maine joined eight other states and the District of Columbia in passing legalization legislation for recreational marijuana in 2016. Since then, the state has struggled to implement a sales and regulation system that works for both the state’s interests and the residents of the state itself. Various changes to the regulations have been put forth by state legislators, many of which were vetoed by state Governor Paul LePage. Regulations in Maine are in flux, and it will be interesting to see how the situation develops over the coming months. This article will be a look at the battle between the pro-cannabis camp and legislators who want to increase regulation based on the voter-approved recreational cannabis initiative passed in 2016.
A State of Flux
On February 23, 2018, the Maine state group known as the Marijuana Legalization Implementation Committee voted to send a revised bill to the state legislature with the goal of implementing a system for sales and regulation of recreational marijuana by adults. This revised bill is in stark contrast to the voter-approved legalization initiative passed almost two years earlier; so far, state legislators have balked at creating a valid sales and regulation system. The new bill contains several new provisions, including a 20 percent sales and excise tax on recreational cannabis and a reduction in the number of plants allowed to be grown by state residents. In the original 2016 initiative, taxes to be imposed were set at 10%. Also, Maine residents were allowed to grow up to six flowering plants; under the revised bill, that number would be halved to three flowering plants grown for personal use. A previous adult-use implementation bill was vetoed by Gov. LePage and the veto was sustained by Maine’s legislative body.
Gov. LePage indicated that he vetoed the bill because he wanted to see more similarity in regulation between the state’s recreational and medical cannabis programs. He also voiced concerns about the status of marijuana on the federal level. Under federal regulations, cannabis is still wholly illegal for any purpose, recreational or medicinal. U.S. Attorney General Jeff Sessions’ announcement that the Department of Justice would repeal the Cole Memorandum was given as an additional reason for the veto. The Cole Memo was issued in 2013 by then-Attorney General James Cole, which stated that the DOJ would avoid prosecuting state-level licensed cannabis businesses unless those businesses ran afoul of both state and federal laws.
The revised adult-use implementation bill was designed to allay the fears of Maine’s Governor and many legislators. In addition to reducing the number of plants that could be cultivated for personal use, the new bill also removed provisions for the licensing of marijuana social clubs in the state. Social clubs were part of the original voter initiative in 2016; rule makers agreed to ban the clubs until 2023 at the earliest, when the concept will be revisited. Social clubs were to be licensed to allow legal purchasers of marijuana to consume their purchases onsite, such as in licensed retail outlets or similar cannabis businesses.
Maine’s Legalization Legislative History
The Granite State has had an interesting legislative history when it comes to marijuana regulations. The substance first became illegal in the early 20th century – Maine followed Massachusetts in making sales of marijuana illegal, doing so in 1913.
In 1976, the state made efforts to decriminalize marijuana. Small amounts of cannabis possessed by individuals became allowed under these regulations. Maine was the third state to decriminalize cannabis in this way. In 2009, further decriminalization was passed, making possession of 2.5 ounces or less a civil infraction, requiring only a fine to be paid.
In 1999, Maine legalized medical marijuana, becoming only the second state to do so after California passed medical cannabis legislation in 1996. Under medical regulations overseen by the program, patients may obtain certification from a participating doctor to use cannabis if he or she suffers from certain diseases, including epilepsy, glaucoma, inflammatory bowel disease, Parkinson’s disease, wasting syndrome, or chronic pain, just to name a few. Patients have the option of growing their own cannabis for personal medical uses, or may designate a registered caregiver to grow for them. They may also purchase medical marijuana from registered state dispensaries. Currently, the state has eight such dispensaries located in areas throughout Maine.
In 2013 and 2014, respectively, the cities of Portland and South Portland passed their own legalization legislation. Portland’s laws allowed for legal possession of cannabis of 2.5 oz. or smaller in quantity.
2016 saw the narrow passage of Question 1 on state ballots. Voters approved regulations on recreational marijuana, including tax rates and the creation of a sales and regulation system. As of 2018, this system has not yet been put into place and is tied up in legislative hearings. The future is bright for cannabis users in the state of Maine, but significant legal hurdles remain before recreational users can enjoy the substance they voted in favor of two years prior.
Black market cannabis sales have long been a problem in the United States. States that have legalized medical and/or recreational cannabis hoped to stamp out the illicit drug markets, and to a large extent have reduced or eliminated their influence. Still, some states continue to struggle with black market marijuana growers, dealers, and distributors.
California is one of those states. To combat black market sales of marijuana, two state legislators have proposed reducing the cannabis tax rate for a period of three years. In this article, we will explore California’s tax proposal, contrast California’s cannabis tax revenue with other legal states, and discuss the future of taxes on ridding the legal weed industry from black market competition.
California’s Cannabis Tax Proposal
Assemblyman Tock Lackey, a Southern California Republican, and Rob Bonta, a Democratic lawmaker from Oakland, are co-sponsors of a proposal to reduce California’s cannabis tax rate for a period of three years. The bipartisan bill was written with the help of additional Democratic lawmakers. This proposal was designed to allow licensed marijuana retailers to lower their prices on products, helping both to spur sales and to undercut the influence that black market dealers enjoy on the cannabis consumer market. Analysts peg the reduction in taxes as effectively cutting retail prices across the board by an average of 9%, including both medical and recreational cannabis products.
Currently, the cannabis excise tax is set at 15%. Under the provisions of the bill, the excise tax would be lowered to 11% for three years, with the time period ending in June 2021. The bill also suspends collection of cultivation taxes that California’s licensed growers must now pay. Under current legislation, growers must pay a cultivation tax of $9.25 per ounce of flower and $2.75 for “trim”, or the leaves resulting from manicuring cannabis buds for retail sale. Combined, the cultivation tax averages to about $150 per pound, a significant expense for licensed California growers.
Both of these tax-suspension measures are seen by cannabis industry analysts as creating a more favorable environment for legitimate cannabis businesses. Black market growers and sellers do not have to worry about the expenses associated with licensing or taxes, giving them a competitive advantage over licensed producers. By being able to sell their products more cheaply, they represent a lucrative portion of the overall cannabis market – a portion that can stifle legitimate sales and cultivation.
California and Legal State Cannabis Tax Revenue
When discussing cannabis taxes, it can be useful to understand how much tax legal states are taking in. In a large part, tax revenue was pitched to state voters during the legalization initiatives as a means of improving social and public services funded by tax dollars.
Taxes on medical and recreational cannabis have been quite substantial, allowing otherwise cash-strapped states to pay for a wide range of services. Some tax revenue is earmarked for law enforcement and cannabis regulation uses, while others is mandated to be spent on youth cannabis use prevention programs at the school or community levels. Other tax dollars are spent on marijuana impact studies by universities and law enforcement agencies.
California’s cannabis tax revenue for the past six months is estimated at $175 million. In its first full year of legality, industry analysts indicate that the state’s cannabis excise taxes could bring in $643 million. Local sales taxes, particularly in California, add millions more to government coffers. In other legal states, millions upon millions of dollars are being collected in taxes. Colorado, for example, collected $67 million in taxes, licenses, and fees collected in the state’s first year (2014) of legalization. In 2017, the state raked in $247 million in taxes, licenses, and fees. As in other legal states, these taxes are helping to fund a variety of state efforts including research, law enforcement, and youth cannabis use prevention programs.
To make the tax revenue picture even more enticing, a cannabis industry analysis firm called New Frontier Data conducted a study that suggests that if the federal government were to legalize marijuana, it could add $132 billion in tax revenue by the year 2025.
There’s an incentive to keeping taxes high, but some states are discovering that their tax rates are not only hurting licensed businesses, but spurring the growth of black market cannabis operations. Other financial hurdles for legitimate producers include exorbitant licensing and cultivation fees. Licensing in some parts of California may exceed $17000. It is generally believed that a combination of tax reform and reduction in licensing fees will help the legal cannabis industry thrive by limiting the advantage black market dealers currently have. The future is uncertain, but the fact remains that California’s tax reduction proposal is being met with accolades by those in the industry that know change is needed.
Thanks to the U.S. Attorney General Jeff Sessions, cannabis stocks dropped significantly after rising 40% in November leaving many investors with losses instead of gains. Earlier this month, A.G. Sessions rescinded the Cole Memorandum with a “return to the rule of law” announcement.
What the Sessions Memo Says
In Sessions’ memo sent to all U.S. attorneys, Sessions reminded readers that when deciding which marijuana activities to prosecute with the finite resources given to the Justice Department, there are “well-established principles that govern all federal prosecutions.”
He went on to say that those principles were established in 1980 by Attorney General Benjamin Civiletti. Over time, these principles have been refined and require federal prosecutors to decide which cases to prosecute on four main considerations:
- Federal law enforcement priorities
- Seriousness of the crime
- Deterrent effect of criminal prosecution
- Cumulative impact of particular crimes on the community
He finished by saying that specific guidance to marijuana enforcement is unnecessary and therefore rescinded.
It is a well-known secret that Sessions has hated marijuana and the Cole Memorandum. However, with his inaction his first year with the Trump administration, many were lulled into believing that he would not change any current guidance. Instead, he responded to conservatives by rescinding the Cole Memo. Or did he?
What U.S. Citizens Believe
Several surveys taken around the country show that a majority of people believe that marijuana should be legalized for medical and recreational use. Even Sessions’ home state of Alabama showed overwhelming support for cannabis legalization. According to the Pew Research Center, the percentages are actually astounding.
In 2016, a survey showed that 57% of adults in the U.S. favored legal marijuana compared to only 37% who said it should remain illegal.
- Millennials, ages 18 to 35, are the largest supporters with 71% in favor of legalizing marijuana.
- Generation X, ages 36-51, showed support in line with the general public at 57%.
- Even the Baby Boomers, ages 52-70, show favor with 56% supporting legalization.
In 2017, over 1,200 adults in the U.S. were asked about marijuana legalization based on political party.
- Democrats favored legalization of marijuana with 66% in favor and 30% not in favor.
- Surprisingly, 63% of Republicans who identify as moderate or liberal Republicans favor legalizing marijuana.
- Conservative Republicans are the only political group surveyed that opposed legalizing marijuana use, with 62% against.
Pew Research Center surveys have also found that blacks and whites are identically in favor of legal marijuana at 59% each, while Hispanics are less supportive at 46%.
Good News for Those Who Are Concerned
Even though Sessions rescinded the Cole Memo, the situation is not necessarily changed for the cannabis industry. With his memo, he left room for each state attorney general to decide whether to act or not. Xavier Becerra, California’s state attorney general, supports the laws passed by California voters and therefore will probably not act.
Congress also has the ability to keep the reigns tightened on Sessions. The Rohrabacher-Blumenauer amendment was created to keep funds away from the Justice Department to enforce the laws. It has been renewed every year and 2017 was no exception. On December 22, the Rohrabacher-Blumenauer amendment was included in legislation to fund the government for two weeks. The intention of the amendment was to protect medical marijuana, but a limited Justice Department budget will affect all areas of the cannabis industry.
The Effect on Marijuana Stocks
Leading up to California’s legalization of adult use marijuana, cannabis stocks had been bullish. In November, stocks rose 40% with anticipated strong sales of adult-use recreational marijuana. Up until January 4th, the date when Sessions released his memo in regards to the Cole Amendment, stocks were continually rising. However, as soon as word got out of the Sessions memo, stocks began to drop.
For example, companies such as MassRoots (MSRT) and Insys Therapeutics (INSY) dropped a staggering 26%, while Innovative Industrial Properties (IIPR) drop 18%. One company that seemed to fare best was GW Pharmaceuticals (GWPH) with a decline of only 0.36%.
Canada Is Also Affected
The AG’s letter to federal prosecutors allows individual prosecutors to decide whether or not to prosecute. This uncertain environment creates a problem for cannabis companies. Jonathan Sherman, an attorney at Cassels Brock, a Canadian law firm that specializes in cannabis legalization, stated, “If the Cole Memo no longer applies, the CSA (Canadian Securities Administrators) policy, with respect to U.S. cannabis operations, may be reversed as the Cole Memo was part of the reason why the CSA was comfortable to allow cannabis companies with U.S. operations to be listed.”
He went on to say that since the implications of the changing federal government’s approach are uncertain, there still will be a “significant concern to Canadian cannabis companies with U.S. operations.”
American cannabis companies now seem to be a risky investment for Canadian investors, whereas only a month ago, these same companies seemed like a good investment. The Toronto Stock Exchange (TSE) warned investors in October about American cannabis companies. The TSE did not want the Canadian companies listed to engage in activity with U.S. cannabis companies because of federal marijuana laws.
However, the Canadian Stock Exchange was more lenient. The Canadian companies that were cash heavy from money raised in the public markets, have been aggressively acquiring stock in U.S. cannabis companies. After the release of Sessions’ memo, Canadian company Horizons Marijuana Life Sciences ETF closed down 8.7% the same day.
What This Means for U.S. Investors
While the Sessions’ memo sent a slight shockwave through the cannabis stock market, this has not kept many investors from continuing to buy stocks in a range of companies in the marijuana industry. For the savvy investor, research into all companies is advised. The investor who does his or her homework can reap the benefits of future legislation as more and more states legalize medical and adult-use recreational marijuana.
Congressman Earl Blumenauer said it best. “Congress must act to put an end to the cycle of uncertainty and permanently protect state medical marijuana programs—and adult use—from federal interference. The American people have spoken. It’s past time that Congress catch up.”
Massachusetts cannabis growers, distributors, and consumers are not receiving any assurances at the state level concerning immunity from federal prosecution. After Attorney General Jeff Sessions released a memo last week stating that he was rescinding all federal protections outlined by the Cole Memo of 2013, the cannabis industry of Massachusetts was left wondering what this means for their industry going forward. Andrew E. Lelling, the U.S. Attorney in Massachusetts stated that he cannot, “provide assurances that certain categories of participants in the state-level marijuana trade will be immune from federal prosecution.”
Why Is the Cole Memo So Important?
The Cole Memo was created in 2013 when states began legalizing recreational marijuana. In it, then Deputy Attorney General James M. Cole, gave guidance regarding marijuana enforcement at the federal level. He advised federal law enforcement officials to focus on certain priorities, such as preventing:
- The distribution of marijuana to minors
- Criminal enterprises, gangs, and cartels from receiving revenue from the sale of marijuana
- States that do have legal recreational marijuana laws from diverting to states that do not
- Any state-authorized marijuana activity from being used as a pretext or cover for illegal drug activity or trafficking
- The use of firearms or any other type of violence in the cultivation or distribution of marijuana
- Any type of drugged driving or other public health consequences associated with marijuana use
- Marijuana from being grown on public lands
- The possession or use of marijuana on any federal property
He also advised federal law enforcement officials to focus on these priorities, rather than on those who possessed small amounts of marijuana and allow the states to police themselves. Part of the reason for this guidance was due to limited federal funds.
Why Should Congress Share the Blame?
Since Congress passed unambiguous federal law in the cultivation, distribution, and/or possession of marijuana, many in the Massachusetts marijuana industry have turned to Lelling for clarification and guidance. Lelling has made it clear that he has taken a “sworn responsibility to enforce that law,” but also stated that he would proceed on a case-by-case basis. He also alluded to the fact that there were limited federal resources to pursue any federal charges.
Lelling’s memo came less than a week after Attorney General Sessions’ announcement of the rescinding of the Cole Memo. Apparently certain people and groups sought additional guidance and clarification as regulators in Massachusetts are moving forward with adult-use recreational marijuana programs.
Why Some Wonder If Sessions Actions Are a Threat or Bluster
Eight states and Washington D.C. have implemented the legalization of recreational marijuana and other states are considering legalization. However, Congress has yet to discuss any laws that would make marijuana legal at the federal level. Since the cultivation, distribution, and possession of marijuana is still illegal at the federal level, federal prosecutors have been directed to approach it as such.
Many officials in states with legal marijuana, including U.S. attorneys, have indicated that they will not change their approach when enforcing marijuana laws, even after Sessions’ directive. This leaves many residents of Massachusetts wondering if Lelling will take the same stance.
In a statement last week, Lelling seemed to side with Sessions when he said that marijuana was a “dangerous drug,” and that he would “aggressively investigate and prosecute bulk cultivation and trafficking cases, and those who use the federal banking system illegally.” He also could not give assurances that any participants in the state-level marijuana industry would be “immune from federal prosecution.”
However, he went on to say that he would “proceed on a case-by-case basis,” leaving some to wonder if Massachusetts’ plans to distribute recreational marijuana in July would remain intact without fear of prosecution. He gave additional hope by stating that federal resources were limited. However, he would not explicitly state whether a certain group, such as state distributors, would be safe from federal prosecution.
Ultimately, it is up to Congress to provide the guidance and clarification that marijuana advocates are seeking. Congress could simply pass a federal law ending prohibition on marijuana. However, since Senator Cory Booker’s proposed bill to end marijuana prohibition has only one other co-sponsor and a Republican majority controlling Congress, a vote in the immediate future seems unlikely.
Brian Kelly, former assist U.S. attorney believes that “it’s mostly blunder.”
With a $40 billion market and a limited budget, it is not feasible to enforce cannabis laws. But, the U.S. Attorney’s office may have already made an impact without any arrests being made. Just this week, ten out of the seventeen medical marijuana dispensaries in Massachusetts had to revert to a cash-only system. A key payment processing company called Lelling’s statement “too risky to continue,” and pulled out of the market.
Massachusetts Lawmakers Are Backing the Voters
Many elected officials in Massachusetts, both Democrat and Republican, have had strong reactions to Lelling’s statement. Governor Charlie Baker, a Republican, suggested that Lelling focus his “limited resources” on battling the opioid crisis in the region rather than recreational pot users. He stated that there is a public health crisis with opioid addiction and street drugs. He did not include marijuana as an immediate concern to the public welfare.
In addition, the governor reminded Lelling that the voters of Massachusetts decided to create a “legal, regulated, recreational marijuana market,” in the commonwealth of Massachusetts. Even though Baker opposed the 2016 marijuana ballot initiative, he stands up for the new state law.
It appears that Attorney General Maura Healey, who also opposed the 2016 marijuana ballot initiative, also supports the people. Her department encourages the U.S. Attorney to provide guidance and clarification to “Massachusetts municipalities, residents, and businesses.”
Senator Elizabeth Warren is currently working on legislation to allows states to “enforce their own marijuana policies.” She called the Justice Department “reckless” for their actions that have created uncertainty in Massachusetts and other states. She posted on Facebook Tuesday that the state’s efforts to protect people’s health and safety by legalizing marijuana should be respected by the federal government.
The Massachusetts Marijuana Commission
The statements from Sessions and Lelling have not slowed down the state’s Cannabis Control Commission. They have continued to work in finalizing the rules and regulations of the recreational marijuana industry in Massachusetts.
The five-member panel is currently making decisions in relation to the soon-to-open markets with issues ranging from promoting diversity and advertising to whether to allow marijuana in particular bars, theaters, and yoga studios. Commission chairman Steven Hoffman stated, “We have a job to do and we’re going to continue to do the job.”
So, until there is some action taken by the federal government, if there ever is, it appears that the marijuana industry in Massachusetts will proceed with the plans approved by the people of Massachusetts.